Chapter 7 - Taxes & Other Liens

Question 1

Encumbrance

Answer 1

Anything which affects or limits the fee simple title to or value of property imposed by someone who is not the owner, e.g., liens, encroachments, or easements.

Question 2

General Lien

Answer 2

A lien on all the property of a debtor.

Question 3

Involuntary Lien

Answer 3

A lien imposed against property without consent/approval of an owner.

Question 4

Lien

Answer 4

A form of encumbrance which usually makes specific property security for the payment of a debt or discharge of an obligation - creates a security interest in specific, identifiable real property, for payment of the property owner’s debt or other financial obligation
–protection for a creditor

Question 5

Mechanic’s Lien

Answer 5

A lien created by statute which exists against real property in favor of persons who have performed work or furnished materials for the improvement of the real property.
–Can be filed by carpenters, laborers, plumbers, electricians, HVAC or mechanical techs, architects, civil engineers, etc.

Question 6

Priority of Lien

Answer 6

The order in which liens are given legal precedence or preference.

1. Tax Liens
2. Mortgage Liens
3. Liens filed first (have priority in the order in which they were filed - first in time, first in right)

Question 7

Specific Lien

Answer 7

A lien that attaches to one specific property only

Question 8

Tax Lien

Answer 8

A lien imposed by law upon a property to secure the payment of taxes.

Question 9

Voluntary Lien

Answer 9

Any lien placed on property with consent of, or as a result of, the voluntary act of the owner, EX: mortgage lien

Question 10

Mortgage Lien

Answer 10

Property owner agrees to the lien as a condition of being approved to borrow funds to purchase real estate - mortgage lender has a lien against the property = amount of unpaid mortgage principal & interest

• -Voluntary
• -Specific

Question 11

Equitable Lien / Judgment Lien

Answer 11

lien imposed on real property by the court system / legal claim on all property of a judgment debtor which enables the judgment creditor to have the property sold for payment of the amount of the judgment
–can occur when there is civil or criminal judgment against a property owner

Question 12

Statutory Lien

Answer 12

lien created automatically by statute/law, EX: tax liens, landlord’s liens, mechanic’s liens, vendor’s liens

Question 13

Property Taxes

Answer 13

Taxes local & state governments apply to real property (i.e., land & fixed buildings on it) based on county-based laws and local budgets. Property taxes pay for the most important infrastructure needs within a community, i.e., water & sewer lines, roadways, law enforcement, public servants & education, etc.

Question 14

What properties are commonly exempt from paying property taxes?

Answer 14

most often non-for-profit properties - ex: government or city owned buildings, courthouses, religious organizations, charitable organizations, schools, etc.

Question 15

Special Assessment

Answer 15

extra tax levied on a property to meet a specific funding goal for a budgeted project - EX: new recreation center, new park, new sewer lines, etc.
–generally not deductible on one’s personal tax return, like property taxes

Question 16

Assessed Value

Answer 16

A valuation placed upon a piece of property by a public authority (tax assessor) as a basis for levying taxes on the property.
–not the same as the property’s market value

Question 17

Assessing Unit

Answer 17

A city, county, town or village with the authority to value real property for purposes of taxation.

Question 18

Assessments

Answer 18

A charge against real estate made by a unit of government to cover a proportionate cost of an improvement such as a street or sewer.

Question 19

Tax Assessor

Answer 19

An elected or appointed official of a county, city, town or village whose function is to value real property for the purposes of taxation.
–may consider the overall availability of the land, size, features of the property, how much the values of homes within the community have increased/decreased

Question 20

What are the 3 main methods to assess a property?

Answer 20

1. Sales Comparison Method - compares value of current property to other properties in the immediate area
2. Cost Method - what is the cost to reproduce the home?
3. Income Method - depends specifically on how much income the property is likely to make for another owner (done for rental properties and commercial retail spaces)

Question 21

Fair Market Value

Answer 21

value the home would sell for on the open market

–generally speaking, you can expect the assessed value to be less than the FMV

Question 22

Tax Rate (aka millage Rate)

Answer 22

Amount of tax levied on a property determined by the total amount in tax dollars collected divided by the total taxable assessed value of the properties in the community.
–whatever amount is needed in order to collect enough money in taxes to cover budget needs

Question 23

Per Mill

Answer 23

applying the tax rate per $1,000 worth of assessed value of the property OR 1 mil = 1/1000 OR 10 mill = 1% of the property’s value. Can either divide the property’s value by $1,000 and multiply that by the mill rate OR take the mill rate divided by 1,000 to get the tax rate and multiply that by the property’s value.
–This way, a property that is valued at $1,000,000 is not paying the same as a property worth $100,000. The higher the value of the property, the more that property should pay in property taxes.

Question 24

Transfer Fees for Real Estate Conveyance

Answer 24

Fee imposed by the state that applies whenever a property is sold or gifted to another person or entity.

• -$0.30 for each $100 of value (purchase value or market value for gifts)
• -fee is collected by the Register of Deeds when the real estate transfer docs are presented for recording
• -Generally the fee is paid by the seller
• -Exceptions: transfer between husband & wife, parent & child, partnerships & partner, and transfers by will or survivorship.
• -falsifying a transfer value is a legal offense